One of the most difficult conversations for many families to have is between aging parents and their children about end of life issues. This generally requires parents’ opening up about their current financial situation as well as both parents and children dealing with very uncomfortable topics such as death and declining health. But to avoid potential misunderstandings and conflicts down the road, it is almost always better to have these discussions sooner rather than later. I have not been doing advisory work all that long, but I have already seen situations where broken relationships between siblings exist because of a lack of communication prior to the death of their parents.
Several issues need to be worked through when addressing finances, aging parents, and end-of-life issues. First is determining if there is a plan to cover potential long term care expenses. My blog last month (July 2016) dealt with this issue in detail so I won’t repeat myself here, but there is significant financial exposure with long term care expenses that need to be addressed either with long term care insurance or having assets set aside and earmarked to cover this potential expense.
In addition to the financial aspect of long term care, it is important to think through in what setting the care would be provided (in the home, assisted living facility, nursing home, continuing care community, etc.). It would be beneficial to think through options ahead of time and do some research on alternatives before it becomes an emergency situation. There are elder care consultants who can help with this research.
Next, it is critical to meet with an estate planning or elder care attorney to ensure that all necessary estate planning documents are in place and up to date. These include the will, durable power of attorney, health care directive/proxy, and trusts, if appropriate. It is also important to verify that beneficiary designations are up to date on all brokerage/401K accounts and insurance policies. It is important to think through who inside or outside the family is best suited to step in if decisions needed to be made regarding health and/or financial issues. It will also be helpful to create a list of all bank and brokerage accounts, credit cards, insurance policies, loans, etc. so that it will be easy for someone after the fact to track down all assets and liabilities.
Part of the discussion surrounding these documents will involve how the parent’s assets will be distributed upon their death. This is where communication with the rest of the family becomes critical to avoid misunderstandings and hurt feelings later. This is especially important when the estate includes assets like real estate that is not easy to divide and may not be valued equally by the different children. The same is true for items with significant sentimental value.
Other considerations that can add complexity and therefore increase the potential for conflict later are mixed families with children from multiple marriages or situations where someone in the family may need additional resources.
Ideally, the parents will feel comfortable enough with these topics and will ensure that well thought out plans are in place that can then be communicated to their children to ensure there are no misunderstandings. But, unfortunately, this is often not the case. These topics are avoided for a myriad of reasons, which leaves a mess to be sorted out after either the parent passes or if the parent starts to experience diminished cognitive capacity.
If one of the children feels that he/she must take the initiative, it will need to be handled very delicately and with input from all impacted parties. The challenge is finding a way to have these discussions where no one (particularly the parent) feels on the defensive. Often times bringing in a trusted advisor of the parent (a lawyer, accountant, financial planner or maybe a member of the clergy) can help.
As difficult and uncomfortable as it may be to initiate these discussions, it is most often better in the long run than waiting for a crisis.